Good morning, ladies and gentlemen, and welcome to Afya’s First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to introduce your host for today’s conference Renata Couto, Afya’s Head of IR. You may begin.

Thank you and good Morning, everyone. Thank you for joining us for Afya’s first quarter 2020 conference call. With me on the call today is Afya’s CEO, Virgilio Gibbon; Luis André Blanco, our CFO; and Júlio de Angeli, our VP of Innovation and Continuing Medical Education. During today’s presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risk, uncertainties and other factors that may cause our actual results to defer materially from those contemplated by these forward-looking statements. Forward looking statements in this presentation includes, but are not limited to, statements related to our business and financial performance, expectations and guidance for future periods or expectations regarding our strategic product initiatives, and the related benefits and our expectations regarding the market as well as the potential impact from COVID-19. These risks include those more fully described on our filings with Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof. You should not rely on them as predictions of future events and we disclaim any obligation to update any forward-looking statements except as required by law. In addition, management may refer non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in the isolation or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgilio Gibbon, Afya’s CEO.

Thank you, Renata, and thanks everyone for joining us today for Afya’s first quarter 2020 earnings conference call. First, let me say that I hope everyone is in good health and safe during this global crisis. Before we start, I would like to acknowledge and thank all frontline workers who are facing this global crisis. We are fortunate that, as a business, we have been able to help by providing free courses at this time to assist hospitals, medical schools, physicians and nurses to deal with the rapid spread of COVID-19. I also want to thank our employees and professors who made it possible, within one week, to move 100% of on-site classes to our online platform. The feedback from students, professors and physicians could not be better. They are all very satisfied with the effectiveness of our online operation. While the environment continues to evolve quickly, our teams are managing our priorities and business very well. Moving now to Page number 5. I am very pleased to report a strong first quarter 2020 results, continuing the positive trend of 2019, and also reflecting the successful execution of our strategic initiatives. We are seeing the benefits from the synergies captured from the integration of the acquisitions completed over the past 2 years, and continue to deliver the combination of our strong and predictable growth with high profitability and healthy cash generation. Our balance sheet position is very strong with more than R$1.3 billion in cash. On the student front, the intake process for second half 2020 have already captured candidates to fulfill all seats available, ensuring 100% of occupancy for the following semester. A 22% growth in our medical student base over the first quarter 2020, reaching 9,700 students already including the UniSl São Lucas acquisition concluded this month. In…

Thank you, sir. [Operator Instructions] I show our first question comes from the line of Marcelo Santos from J.P. Morgan. Please go ahead.

Hi, good morning. Thanks for taking the question. I have 2 actually. The first would be about the candidates that you already have for the intake of the next season. Could you just explain a bit more how does this work? I mean, what kind of commitment do they already have? Are there still candidates or there are some that’s already enrolled? And because you might have candidates that cannot pay in the end, so how confident you are that you get 100% occupancy? Just could you explore a little bit more on this? And the second, if you could discuss a bit the schedule for greenfield openings. So you have 2 greenfields that were supposed to be opened in the first half. But given the COVID situation, this didn’t happen as far as understood. So could we still expect this to open in the second half of the year or is it more prudent to expect everything for 2021? These are the 2 questions.

Hi, Marcelo. This is Virgilio. I think your first question here about the candidates that we have and we understand there is enough to fulfill 100% of the seats. The ratio that we are seeing, the number of candidates applying for all seats in Brazil, when we have the comparison to the same semester, the last semester that we have is much more than we need to fulfill, all new seats that we have to enroll for the following semester. So what we are doing, we are actually right now have almost 80% of the enrollment already confirmed. We are just calling the students to fulfill all the seats. We anticipate a lot of the process. Because of that using annual grade results from previous years, so that’s the way that we are doing, analyzing duration, comparison to last years and also anticipating the enrollment for the following semester. About your second question, how we are opening the greenfields, we have 2. There is a very final step to have the signature from the Ministry of Education. That’s the last step that is required. And we think that the signature can happen, we expect to have this by the end of this semester. But the truth is that the Ministry of Education, everything is stopped right now because of the pandemic. And even if we have the beginning of this – the authorization to start our operation, we just expect to have the beginning of this operation, the second semester or maybe the beginning of 2021. That’s I think one of the downside for the pandemic to start this new – the new sites. Okay.

Okay. Just to follow-up on the first, so when you say 80% has already been confirmed, that means they have already paid something or there is some kind of initial fee. What this confirmation entail?

The students confirm the enrollment they have to pay the first month’s tuition. We still have some seats to fulfill. But we have candidates in the basket to convert them and have 100% of occupancy in the second semester. Remembering, that the second semester volume of new students is lower than in the first semester, so the ratio is higher, the volume of candidates that we have to fulfill all the seats, it’s better than the first semester.

Great, very clear. Thanks a lot.

Thank you. Our next question comes from the line of Susana Salaru from Itau. Please go ahead.

Hi, good morning, all, and thank you for taking our questions. Our first question is related to the margin expansion of the quarter. If you could elaborate a bit more what were the main drivers behind the cost savings and if you could also talk about what were the synergies that were unlocked from the acquisition? That will be our first question. And the second question is related to the tickets. We saw that med school tickets went up significantly. If you could just comment how were the trend of the healthcare and medical school trends for the tickets. And also for the other courses that you have. Thank you.

Hi, Susana. This is Virgilio. About the margin expansion, I think it’s 3 main drivers that is driving all these efficiency that we are getting from operations. First is the scale. We are seeing all this maturation and all corporate activities, holding expenses we are diluting time over time. And then, we have a strong trend as we still have the maturation till 2026. Second, as we are seeing on these acquired institutions, we are having a lot of synergies in faculty costs. We start implementing our curriculum, maximizing the number of students that study in groups per professors. So minimized our rates per student and also improving the quality of all these practical classes. So this is 50% of the costs. So when we have some change on that, have implemented a new curriculum, it’s something that is very strong in terms of synergy and leverage our operations. And third, after integration, full integration, when we pull all activities to our shared services, we have all the G&A efficiency. We have a very rare well implemented process in our – across Afya. So when we push all the transaction activities, academic back office, the HR, payroll, supply chain, IT activities, we didn’t change any FTE full-time equivalent on our back office operation. So these are the 3 main drivers. Remember, in the top-line, the first initiative is a big win for all institution that we acquired to guarantee 100% of occupancy. Most of the institutions that we are plugging to our operation after closing acquisition, they are not using a 100%. We are not maximizing the students. If they have some drop-offs in the middle of the program, they are not replacing the student in the beginning. So that was the main drivers for all this 500 bps expansion that we are seeing quarter-over-quarter. Luis will help me to expand the second question about the average tickets. Luis André Blanco: Hi, Susana, it’s Luis speaking. About the tickets that we saw increase from this quarter everybody that – the quarter in the last year. But the ticket dynamic is related to the maturation of the – our business. We had in 2017 a ticket increase for the first year only. Since then, we have increased our tickets, because of the students begin with a higher ticket and the lower tickets of the students are being gradual. So during the maturation the ticket increased by itself. So that’s why we are having an increase in our tickets.

Susana, just adding one point, really important, besides all these maturation, when we changed our curriculum back in 2017 and we have this recurring positive effect on the mix of our tuition, we also have this positive effect, when we plug a new acquisition. Just remind, UniRedentor that we started operating back in February, this asset has the highest tuition in Afya, around R$10,000. So also, we will have this positive effect when we have more months and also maturing UniRedentor operation. So this is what we are doing as a strategy, semester over semester. We are just changing prices related to inflation. The exception is when we have a new acquisition or we change the curriculum, we have something above inflation. So as a guidance, we are still expecting 1 to 3 percentage points in the long-term view, until the full maturation of all this institutions.

Could you just – just to clarify, you are referring to the med school tickets, right? Or are you referring to the consolidated overall tickets, when you say this readjustment?

Medical, we are referring the medical school tuition.

Perfect, perfect. Thank you.

Thank you. [Operator Instructions] I show our next question comes from the line of Thiago Bortoluci from Goldman Sachs. Please go ahead. If you have your phone on mute, please un-mute your line. Okay. Our next question comes from the line of Vinicius Ribeiro from UBS. Please go ahead.

Yeah, hey guys. Good afternoon. Hope everyone is fine. So 2 questions on our side. The first on the MedCel platform that you guys mentioned and you gave us a little bit more of detail. Just a question here, given that you guys are the – the project seems pretty well received, what would you guys need for this platform to become a new revenue stream? Do you have any idea of what will be the economics for that for offering for other medical schools? Do you want to do that? And the second question is also related to Business Unit 2. Just to confirm here, if you are seeing some difference in terms of demand dynamics for the Business Unit 2, both on MedCel and IPEMED? That’s it. Thanks, guys.

Could you please repeat your question?

Yeah, sure. Both?

Yes, please.

A lot of noise.

Yeah, sorry. So the first question is on the MedCel platform, if you guys could elaborate a little bit on what would you need for this platform to become a new product, a new revenue stream by offering it to new – to other institutions, and if you guys have any idea of what will be the economics? Did you guys understood?

Yes and the next one?

And the next one is just also on the Business Unit 2. Just if you are seeing any difference in terms of – as far as demand goes, if the demand is so resilient as it is on the Business Unit 1. Júlio Eduardo Razente de Angeli: Okay, hey, Vinicius. This is Júlio. And, hello, everyone, hope everyone is safe out there as well. So for the first question, first, I mean, we already have in place a team working on the B2B side of the business, so we already have a small, but still – I mean, its revenue coming for B2B. What we have today, what we are offering to the schools, basically, is the solution for the last year for the internship program. So what happens, especially now with all the situation is we offered the platform for the schools that they didn’t have anything actually to offer to the students. And we had 32 – imagine that around 340 medical schools in the country, out of those 32, 40% of those are public schools. So we see the need due to the situation and the idea in terms of what needs to become a revenue stream as we said. I mean, we are charging these – actually the current clients that we have on a subscription based model. Yeah, so the idea is to convert these schools, especially those ones that are private into customers. So we are working with them, but it’s – as we speak here. And as well, I mean, the other ones, the public ones, tricky to find a commercial agreement. But we can obviously, work on a B2C side with those students. But remember, when – the way we see this is that on the thesis of Afya, we want more…

Very clear, Júlio. Thanks.

Thank you. I show our next question comes from the line of Irma Sgarz from Goldman Sachs. Please go ahead.

Yes, hi. Thank you for taking my question. First of all, thanks to Virgilio and team for the presentation and congrats for the results. We have 2 quick questions. First, as a follow-up from Susana, and I apologize if I missed part of it. We got temporarily disconnected from the call. But I just wanted to go back to pricing question. For new intakes, the freshmen that are coming in now, could you just – from what I understood, so you’re adjusting just by inflation for the medical students. And then, I wanted to confirm, so first wanted to confirm that and for non-medical students is that also in line with inflation or what should we expect there? Again, is this about the intakes, so the new classes, not existing students. And if you’ve – generally, in the market, if you’ve seen, for medicine, we know that the demand dynamics are obviously absolutely different then from other courses, but have you just seen given that people are going through different economic challenges, have you just seen in – as medical schools are preparing on the private side, are preparing for the new intakes, have you seen more promotions or discounts or would you say that this is not something that you’ve seen in the market so far? Thank you.

Okay, Irma. Thanks for your question. First, the maturation, on the average for medical student, it is two-folds. We have changed the prices for new students in the beginning of the year close to inflation. So our average ticket for new fresh is around R$8,000 per month. And as we have this changing tuition in the past, when we implemented new curriculum back in 2017, 2018 for the new acquisitions, we have this positive maturation effect, because when we acquired, the average tuition was R$5,000, R$6,000. We changed R$7,500, R$8,000. So we have the maturation of the students moving to the [position asset] [ph]. So that’s why we have this positive recurring effect till 2026, when you have the full maturation. About the other programs, we have also changing close to inflation. So as we can expect, for modeling proposal, we are also seeing other program for undergrad varying close to inflation year-over-year. But we are seeing that also on these programs, we are seeing above inflation is the big effect, because programs that doesn’t make sense to offer in some regions after acquisition, we are closing these program and we are not going to fight against any other player or distance learning. We are completely focused on how other medical and other health programs. About the payment capacity of our students, one indication that is much better than we expected previously used the cash collection. When you compare month by month, I guess, 2019, we are 3 or 4 percentage points in all institutions better. What is happening? We changed a lot of the collection process back in 2019 second semester. We present a lot of new procedure, new controls, that helped a lot, renewing all the students for the first semester 2020. So this positive effect – even consider the difficult, the economical difficulty for the COVID-19, we are seeing a very positive, the low-hanging fruit that we have on this front. What we are doing for the renewal is in a case-by-case situation we are offering the financial aid for these families. We are dividing into installments, 6 to 12 installments, using a lot of credit cards. Remember, it is a completely different profile from our medical students. But it’s on a case-by-case situation. Okay.

And, in the market overall, so from the competitive dynamics with the medical schools in the private sector?

We have announced on our release, we already have candidates who fulfill 100% of our seats, so it’s the ratio candidates per seat is very healthy that we can keep guarantee 100% of occupancy, even consider this extended scenario. We have already completed, enrolled 70% of this student base for the new student, already paid the July tuition.

Perfect.

Okay.

Perfect. Thank you.

Thank you. And our last question comes from the line of Scott Piper from Itau. Please go ahead.

Yeah, hi. Apologies if previously asked, but I was wondering if you could give us some color on the economics of future M&A prior to the COVID crisis, the price per student for acquisitions was starting to gravitate higher, given increased competition. And I’m curious how you see that development both now and going forward given the crisis. And what you’re at – the dynamics of accretion for potential future acquisitions, and most importantly, how your appetite has changed because of the crisis for acquisitions going forward? Intuitively, you would think that the environment would be better for acquisitions, given your cash situation and probably more strain in the economy. But I was just wondering if you could elaborate on that.

Okay, Scott. So our M&A pipeline, it’s moving very, very fast. As we guided, we have already more than 500 we analyzed under MoU contracts. We didn’t slow the pace that we analyze assets. Actually as a kind of the opposite, we are seeing much more opportunities coming to the table. I think it’s more clear to medical schools. They again concerned how they can continue isolated and keep confirming 100% of their enrollment. So that kind of opportunity that we have, we analyzed and trying to have a fair negotiation in terms of price in the – for Afya. So we are not guiding any valuable student that varies when analyzing the different maturation of the institution. In our case, you analyzing our track record, the 5 cases that we are showing on our webcast, we have completed different valuations and all of them delivering incredible rate of return. As an example, we have a greenfield of IPEC that the number of – the value per student is completely different from Uninovafapi that was EBITDA notable, because they have a very large operation, progress in the portfolio and a positive EBITDA. So the way that we analyze it on multiple EBITDA for more mature and complete institution, and when we have some maturation and also – it’s almost like greenfield license that we are applying that will be much more related to multiple per student.

Per seat.

Per seat, I’m sorry. So just about our appetite, we are keeping the integration at very fast pace, even considering the isolation that we have in some cities. We are doing a very well process. Of course, that to conclude and to close an acquisition, we have to take care that all these process. And also we have to close and have the accounting, all the accounting procedures, there are external auditing to report this new acquisition. So we are having some kind of audit, a new audit, so we can acquire and close 2 or 3 acquisitions per quarter. So that’s something that we are doing, an audit, much more concerned in our capacity to integrate and have the condition to have all the procedures to have our balance sheets approved on a quarterly basis, considering that we have to operate in addition for 1 or 2 months already. But we are not slowing the pace. That’s I think is the main message here.

Okay. Thank you. Luis André Blanco: Yes, Scott. It’s Luis speaking. Right now, if I could add something – additional points to Virgilio. That’s very interesting to highlight that. In this crisis, we see opportunities in digital platforms to add more service in this moment. What we saw on the pipeline and in this crisis with MedCel business, we saw a very, very strength on that, on digital transformation. So in this case, in this digital platform, we are even speeding up this valuation, whether it is – transactions with negotiations to put more digital platforms in our portfolio.

Okay, thank you.

Thank you. I show no further questions in the queue. At this time, I like to turn the call over to Virgilio Gibbon, CEO, for closing remarks. Please go ahead.

So, thank you. Thank you all. To conclude my remarks, I would like to reinforce our business resilience and the outstanding dedication of our team to deliver this great first quarter results. We affirm our first half 2020 guidance even under COVID-19 crisis. We operate in unusual times, times of great challenges and uncertainty; but also times at which you can differentiate ourselves and see many key opportunities for Afya. Thank you for joining us today and I look forward to meet you when all the situation is over. Keep safe. Bye-bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.